In Lanceley & Lanceley (1994) FLC 92-491 (9 August 1994) the Full Court (Barblett DCJ, Frederico and Lindenmayer JJ) dismissed an appeal by the wife where the wife sought court orders, in an intact marriage, for a declaration of legal interest pursuant to section 78 of the Family Law Act 1975, arising from her claimed interests, being an equitable interest in half of two real properties registered solely in the husband's name, and a three-quarter interest in the jointly owned matrimonial home. The assets had a total net value of $1.3 million.
The husband had been sued by a company that he was formally the managing director of, and a judgement debt was entered against him for $2.7 million plus interest. The husband did not have sufficient means to pay the judgement debt. The husband was then served with a bankruptcy notice by the company which he failed to comply with; shortly thereafter the husband committed an act of bankruptcy.
The husband had not filed any material in response to the wife's application. The facts that the wife relied upon in support of her claim were both undisputed and untested. During the trial, the husband neither agreed with nor disagreed with the orders sought by the wife nor adduced evidence or made submissions.
During the primary proceedings, the wife adamantly refused to notify third party creditors of the family law proceedings. The wife refused to accept an adjournment of the trial so that the third-party creditors could be notified.
Of the parties' three children, only one child lived at home and he was aged 14 years old and had a disability.
In the primary proceedings, the primary judge made the following determinations:
Third Party Notification of Proceedings
His honour considered Semmens v. The Commonwealth of Australia and Anor (1989-90) 13 Fam LR 715 where an order was made pursuant to section S79A of the Family Law Act 1975, setting aside consent orders made under section 79 between husband and wife which adversely affected the rights of third parties to recover substantial debts.
His Honour stated at paragraph 8:
I cannot believe that similar considerations should not be applied to the exercise of the discretion granted under section 78. There should have been notice to each third party whose rights could be prejudiced. Without it there could be a miscarriage of justice: the legitimate rights of a third party could be, in effect, subordinated to the wife's interests.
Not Binding Third Parties
The Full Court noted as follows:
At paragraph 10 his honour stated, "... the persons really interested were not before the Court ... It is true that in their absence they were not strictly bound by the declaration, but the courts have always recognised that persons interested are or may be indirectly prejudiced by a declaration made by the court in their absence, and that, except in very special circumstances, all persons interested should be made parties ... before a declaration by its terms affecting their rights is made."
His Honour then said:
"Thus, although a declaration will not bind interested non-parties without notice, they should be given notice if they may be otherwise prejudiced by it."
Full Court Decision
The Full Court dismissed the wife's appeal on the following basis:
"1. In the instant case, there was no issue between the parties calling for the making of the declarations sought by the wife.
2. In all the circumstances of the case, it was clear that the proceedings instituted by the wife were not directed to resolving any issue between the parties, but some collateral purpose - to give the wife a tactical or practical advantage over the husband's creditors in imminent bankruptcy proceedings.
3. Were declarations made in these proceedings between the husband and the wife they would not be legally binding upon third parties who were not parties to the proceedings; including the husband's trustee in bankruptcy or his creditors.
However, the husband's creditors still had a legitimate interest in the outcome of the proceedings and stood to be affected indirectly. If the consequential orders were made, the wife would be in a position to sell the properties to bona fide purchasers or to mortgage them.
4. On the facts of this case it would have been an erroneous exercise of his Honour's discretion to accede to the application for the declarations.
This was particularly so where the only parties having a real interest in opposing the proceedings - the husband's major creditors - were given no notice of them. Moreover, the wife was steadfast in her determination at trial not to give notice to the relevant creditors."